Aberdeen’s oil curse

ABERDEEN, Scotland — The Aberdeen Food Bank Partnership is housed in a former fish-filleting warehouse a stone’s throw from the docks, its shelves lined with boxes of tea and porridge oats, packets of pasta and fresh fruit. In a city once known as “Europe’s oil capital,” former oil workers are now queuing for food parcels.

“One man came in with a Porsche recently. He had lost his job, his house,” says Dave Simmers, chief executive of Community Food Initiatives North East, the food bank’s parent body.

“Oil companies used to be our biggest social enterprise customers and the profit from that supported our charity work. That’s completely changed,” Simmers adds.

Aberdeen, a city of around 200,000 in north-east Scotland, has long been dividedbetween the haves and have nots. Extravagant mansions are often within walking distance of high-rise housing projects. But a sharp downturn in the multi-billion-euro North Sea oil industry has sent the local economy into a tailspin.

“I think there is a lot more pain to come” — Jake Molloy, a regional union organizer and former offshore worker

Plunging oil prices — the cost of a barrel is barely a third of its June 2014 high of $114 — have changed the face of the “Granite City.” Streets in the city center, hewn from hard, gray rock, are pockmarked with empty retail units and “To Let” signs. Amid widespread job losses, many are struggling to make ends meet.

AT SEA – FEBRUARY 24: A general view of the BP ETAP (Eastern Trough Area Project) oil platform in the North Sea on February 24, 2014, around 100 miles east of Aberdeen, Scotland. The British cabinet will meet in Scotland for only the third time in history to announce plans for the country’s oil industry, which it warns will decline if Scots vote for independence. The fate of North Sea oil revenues will be a key issue ahead of the September 18 referendum to decide whether Scotland will end its 300-year-old union with England, and is expected to be the focus of Prime Minister David Cameron’s cabinet meeting. (Photo by Andy Buchanan – WPA Pool/Getty Images)

“If it wasn’t for this I wouldn’t be able to survive,” says Hazel Burgess as she carefully lays a loaf of white bread on top of her wheelie bag on her weekly visit to the food bank. The mother-of-two has been receiving food parcels for three months, since money became tight when her son, who suffers from autism, had his benefits reduced.

Simmers estimates the food bank will have given out 500 tons of food by December, up from 280 tons last year.

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Since late 2014, nearly 100,000 people have lost their jobs in the oil industry and its supply chain. Another 360,000 have taken pay cuts of, on average, 15 to 20 percent. Workers are giving away cars they can no longer afford to run. Changes to shift patterns mean workers often spend less time on land, which exerts a heavy toll on their families.

Jake Molloy, a regional organizer for the Rail, Maritime and Transport Union, and a former offshore worker, blames the government for “failing” an industry that has contributed some £300 billion to the British exchequer since oil was discovered in the area in the 1970s.

When it comes to oil, successive U.K. administrations have followed a simple policy: Tax heavily in the good times, loosen purse strings in the bad. Now with exploration at lows not seen since the 1960s, Westminster “doesn’t seem to have a strategy” for reinvigorating the industry, says Molloy.

“I think there is a lot more pain to come.”

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For years, particularly as oil hovered around $100 a barrel after the 2008 financial crisis, prices in Aberdeen only went in one direction: up. Now gravity has re-exerted itself. House prices, which rose by 17 percent in 2013, have fallen sharply in the last year, according to a report from the Aberdeen Solicitors’ Property Centre.

Aberdeen’s population has declined by about 15 percent since the oil market crash, and a majority of students and young professionals are considering leaving the city in the next few years, according to a recent PwC report. The market crash has largely been attributed to a price war waged by Saudi Arabia against the U.S. shale industry.

Hotel rooms were once so hard to come by that offshore workers were put up in Edinburgh, more than 100 miles away. Now, vacancies are the new normal.

“What we are experiencing now is here to stay,” says Stewart Spence, owner of the five-star Marcliffe Hotel. “When we had $100 oil, we had 100 percent occupancy. Now we have $40-$50 dollar [oil], we have 40-50 percent occupancy. That’s what we have to live with for the future.”

The Scottish share of tax receipts from the North Sea shrank from £9.6 billion in 2011-2012 to £1.8 billion in 2014-2015.

Most North Sea staff are employed not by Big Oil, but by smaller, local contractors. The downturn has taken a heavy toll on these local businesses across the board. Even the city’s few success stories are illustrative of a deeper malaise.

Michelle Clark spent a decade working in recruitment and training for an Aberdeen-based firm before being made redundant in 2014. Fifteen months later she lost her job again. After unsuccessfully interviewing for 60 posts she decided to try something different — and opened her own business.

“I always wanted to do this,” Clark says from behind the counter of Melt, a small take-out restaurant in Aberdeen’s leafy west end. The premises, formerly a check cashing outlet, has a self-consciously 1970s feel: laminated floors, retro floral wallpaper, vintage tea sets. A chalk board advertises special Nutella and cheese toasties.

Since opening in March, business has been brisk. “It’s an affordable luxury at a time when everyone is struggling,” explains Clark. Her husband recently lost his job at a specialist musical instrument store.

“I probably speak about oil and gas more in here than I did when I worked in oil and gas,” she says. “It seems to affect everyone who comes in and they want to speak about it.”

Across town, native New Yorker Stephen Dillon closed his steakhouse, Prime Cuts, after a decade in business. Midweek sales had fallen by almost 70 percent. “The corporate business just disappeared.”

Dillon and his French wife, Pascaline, opened a new BBQ restaurant but have little hope for the future.

“Even if the oil industry does come back to a reasonable level, for us it won’t be enough,” he says. The stress has taken its toll on the salt-and-pepper haired American: He has recently suffered from depression. “You try to be optimistic but it’s tough.”

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Beyond its boom effect on the local economy, oil has also been inextricably linked to Scottish independence in the national imagination. In the 1970s, the Scottish National Party (SNP) ran on the acerbic slogan: “It’s Scotland’s Oil.” In those days, Texans in Stetsons sauntered down Aberdeen streets and the nationalists were a minor concern.

Now, the SNP is the dominant power in Scottish politics, and oil remains a key part of their platform. The 2014 prospectus for leaving the three-centuries-old union with England proposed setting up an oil fund in the Norwegian mold.

Mark McDonald, an SNP member of the Scottish parliament for Aberdeen, says an independent Scotland would be best placed to guide the North Sea through turbulent waters: “We have left other people to deal with our economic situation for quite some time and there are plenty of people who haven’t got a good deal out of that.”

The oil industry’s recent travails, however, have not helped the independence cause. The Scottish share of tax receipts from the North Sea shrank from £9.6 billion in 2011-2012 to £1.8 billion in 2014-2015, and is likely to fall to zero in the coming months — undermining the argument that the Scottish economy can stand on its own.

“The EU referendum added to the uncertainty that we already had with the oil industry” — Lynn Bennie, reader in politics at Aberdeen University

In spite of the downturn, Aberdeen’s skyline is littered with cranes. Construction for new shopping centers and hotels planned in the boom years is still going ahead. A recently signed “City Deal” is expected to fund a new harbor development. At Marischal Square, workmen lower girders into place on a £50 million development built under a controversial, complex private finance deal that could leave the local council with a significant black hole in its budget. The development was dogged by protesters, many of whom argued that the city could not afford — and did not need — another glass-and-steel retail complex.

Across the street, in Aberdeen’s council offices, local representative Barney Crockett says the city has been forced to be “creative” to support new projects. “We are the lowest funded local authority and the lowest funded health board in Scotland,” the Labour councilor says.

Crockett, who is “old enough to remember Aberdeen before oil,” says the city will bounce back. But he admits to being “worried” about the recent Brexit vote.

Aberdeen has often relied heavily on links with Europe, and particularly nearby Norway.

“We often feel we don’t get a fair look from Scottish or British governments so Europe has been really important,” Crockett says, pointing to the city’s hydrogen-powered bus fleet, partly funded by the EU.

A section of the BP ETAP (Eastern Trough Area Project) oil platform in the North Sea, around 100 miles east of Aberdeen, Scotland | AFP photo / Pool / Andy Buchanan

Brexit could heap more woes on the already-stressed oil and gas industry. The North Sea’s mainly mature fields have far higher production costs than places such as Saudi Arabia or Equatorial Guinea. Last month, analysts at S&P Global Plattswarned that for the North Sea, fears over Britain’s EU exit “could be the straw that breaks the camel’s back.”

Most Aberdonians, however, seem more concerned with fluctuations in oil prices than the political machinations in Brussels or Edinburgh.

Influential Aberdeen oil magnate Ian Wood has been a vocal critic of calls for a second independence referendum — a vote Scotland’s First Minister Nicola Sturgeon has called “highly likely” in the wake of Brexit.

Aberdeen also voted ‘No’ to independence in 2014 and there is little sign of a shift in mood, even though the SNP holds all the Westminster seats in the region. Recent opinion polling suggests that despite voting overwhelmingly to remain in the European Union, most Scots still favor being part of the U.K.

“The EU referendum added to the uncertainty that we already had with the oil industry,” says Lynn Bennie, reader in politics at Aberdeen University. “Most people just want that uncertainty to end.”

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Back at the Aberdeen Food Bank Partnership, volunteer Ingrid Pringle is concerned about the city’s future. The retired social worker recalls moving to Aberdeen from south-east England in 1981.

Four decades ago, oil transformed Aberdeen from a rough fishing town into a key player on the global market. But the city has little to show today for the billions that passed through it, says Pringle.

“Back then it was a city on the up. It doesn’t feel like that now,” she says as she fills plastic bags with fruit and vegetables during her weekly six-hour shift.

“I assumed that the oil industries would invest in Aberdeen, but aside from sponsoring the odd roundabout they haven’t really done anything.”